March 15, 2013

Guido Westerwelle, ask Stefan Yngves, Basel Committee, to explain “risk-adjusted regulatory bank returns” to you.

Sir, Guido Westerwelle makes a passionate plea for deepening the reforms in Europe, since “In some countries youth unemployment has risen to intolerable levels”, “Europe needs austerity and reforms – not spending” March 15. 

Mr Westerwelle, the foreign minister of Germany, is unfortunately not aware that there is another sort of “unilaterally austerity imposed from the outside”, an “austerity curse”, which has been destroying the economies in Europe and impeding job creation for quite some time. 

I refer to the capital requirements for banks imposed by the Basel Committee, I do not know with which authority, and that makes lending to those perceived as “absolutely safe” borrowers, immensely more profitable for the banks¸ than lending to the “risky” borrowers, like all the small businesses and entrepreneurs. And that has effectively castrated the banks and made it impossible for these to allocate economic resources efficiently. 

May I suggest Mr. Westerwelle, that he picks up the phone and calls Stefan Ingves, the Chairman of the Basel Committee to ask him: “Stefan what are these “risk-adjusted (regulatory) returns” that you mention in your March 12 speech?

Here I explain more of this 

PS. Sir, just to let you know, I am not copying Martin Wolf with this, since he has told me not to send him anything more about these “capital requirements”… he already knows it all... so he thinks.